Depreciation on car Registered in partners or directors name

Can Assessee claim Depreciation on car Registered in the name of its partners or directors?

Introduction

‘What’s in a name? That which we call a rose by any other name would smell as sweet.’ This Shakespearean quote seems to have inspired as many as five High Courts to hold that the Income-tax Department cannot refuse the claim for depreciation on a vehicle owned by a company or a firm, on a mere ground that it is not registered in its name, but stands in the name of its director or partner. Interestingly, there is no decision of any court or the Tribunal that has taken a contrary view on the subject.

Section 32 of the Income-Tax Act, 1961

Section 32 of the Income-Tax Act, 1961 entitles a taxpayer to claim depreciation at prescribed rates for assets owned and used by the taxpayer for assets owned and used by the taxpayer for assets owned and used by the taxpayer for purposes of his business or profession. In case of a vehicle such as a motor car, it is common to come across cases where the car is registered under the Motor Vehicles Act in the name of a partner or a director (since it is a lot more economical to do so), though the same has actually been purchased by a firm or company out of its own funds, or if acquired through borrowed funds the loan is repaid along with interest by the firm or company.

Relevant Case-Laws

In CIT v. Salkia Transport Associates [1983] 143 ITR 39/13 Taxman 191 (Cal.), CIT v. Nidish Transport Corpn. [1910] 185 ITR 669/[1989] 44 Taxman 351(Ker.), CIT v. Dilip Singh Bagga [1993] 201ITR 995/[1994] 77 Taxman 66(Bom.), CIT v. Navdurga Transport Co. [1999] 235 ITR 158 (All.) and CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88/123 Taxman 693 (Delhi), NVR Cinema Vs ITO (ITAT Chennai); I.T.A. No. 2125/Chny/2018, Gold Finch Jewellery Ltd. Vs D.C.I.T. (ITAT Ahmedabad); ITA Nos.1075-1076/AHD/2016, DCIT Vs M/s. Deversons Industries Pvt.Ltd. (ITAT Ahmedabad); ITA No. 431/Ahd/2016, it has been clearly and consistently held that mere non-registration of a vehicles in the name of the company or firm under the Motor Vehicles Act cannot disentitle it in regard to its claim of depreciation, when the facts on record are undisputed that such company or firm has in fact made the investment in purchase of the vehicle and such vehicle is being used for its business. The requirement of section 32 is that the vehicle must be owned by the taxpayer and not that the taxpayer must be a ‘registered owner’ of the same under the Motor Vehicles Act.

For arriving at the above conclusion, various High Courts and the Tribunals on the above issue have also usefully relied upon the ratio of the Supreme Court in the case of Mysore Minerals Ltd. V. CIT [1999] 239 ITR 775/106 Taxman 166, wherein the Apex Court has held that the term ‘owned’ under section 32 must be assigned a wider meaning. In the case before the Supreme Court, although a building was formally not registered in the name of the taxpayer through execution of a conveyance deed, the Court held that since the taxpayer had actually invested in the asset and was utilizing the same and thereby incurring loss on account of wear and tear of such asset, it was entitled to claim depreciation in respect of the same.

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(Republished with Amendments by Team Taxguru)